Rail-specific Issues
Role and duties of ORR
Key functions bestowed upon the ORR by statutes derived from European Directives include its role as administrator of the track access charging regime, national licensing authority and national safety authority.
In parallel, those same directives have imposed upon the ORR an increasing array of activities, including the exchange of information with the national regulatory bodies of other Member States and notifications to the European Union Agency for Railways (EUAR) on the issuing, amendment or revocation of a safety certificate or safety authorisations.
Following a Full Brexit, there would be increased flexibility to alter the role of the ORR and, in turn, the access charging, safety and licensing regimes (each discussed in further detail below). That said, we would expect to see continued engagement with the EUAR outside of EU membership, involving at the very least a process whereby new European regulations are considered by the ORR for replication in UK legislation.
One of the benefits to be gained in maintaining these links is that EUAR bears the costs and obligations of undertaking the determination of standards, thereby reducing the burden on the ORR. In addition, the sharing of information and international recognition of the charging, licensing and safety regimes in the UK is an important factor in preserving the UK as a safe, attractive and competitive market.
That said, a Full Brexit would afford the ORR a greater degree of autonomy in relation to applying and interpreting international standards and structures. This will enable more focused tailoring of regulation to fit the realities of the UK market, rather than being required to apply a one-size-fits-all model, which we anticipate would be a likely consequence in the medium to long term. In particular, this is likely to occur where the Commission or the EUAR would be the ultimate decision-maker.
Access Charging
The ORR sets the framework for track access charges levied by Network Rail, and it must ensure that they are consistent with EU law.
Current EU rules, recently enacted in the UK via the Railways (Access, Management and Licensing of Railway Undertakings) Regulations 2016, require track access charges to be set on the basis of direct/marginal costs, which must be “the cost that is directly incurred as a result of operating the train service”. EU rules also provide that access charges for different railway undertakings that perform services of an equivalent nature must be equivalent and non-discriminatory.
Following a Full Brexit, in the absence of a bilateral agreement requiring adherence to EU requirements, the ORR could seek to modify the regulations applying to access charges and there could be greater scope for creativity in setting open access charges.
While, in general we would expect the Government to continue to require the application of non-discriminatory principles, it is possible that it may wish to apply greater flexibility in certain cases (for example, freight).
A recent report by the CMA recommended that access charges should reflect the opportunity costs of infrastructure, to allow scarcity to be reflected in the allocation of train paths. There is a growing desire to reform access charges, and a Brexit on terms that do not require adherence to the EU restrictions may give greater freedom to do so.
As previously noted, the ORR could instigate an Interim Review of access charges if economic conditions create a “material change in Network Rail’s circumstances” affecting its ability to deliver its PR13 output.
Infrastructure Management
Since September 2014 Network Rail has been classified as a public sector entity, following guidance issued in Eurostat’s European System of Accounts. Partial Brexit would probably not change the UK’s adoption of the Eurostat principles, but Full Brexit might. This could help facilitate changes to the status and management of Network Rail and its ability to borrow.
The Market Pillar of the Fourth Railway Package is designed to ensure that there is sufficient independence between state-owned entities such as infrastructure managers, by restricting vertical integration. This means that a body cannot manage rail infrastructure or be part of its management and at the same time directly or indirectly control a railway undertaking.
The UK market is more open than many of its European counterparts, with separation between infrastructure managers and train operators firmly established. As such, the impact of the Market Pillar is not as significant as it may be in other countries.
However, there remains some debate as to whether these requirements might prevent the alliancing - in particular the ‘Deep Alliancing’ - that Network Rail has engaged in with some train operators. A Full Brexit may therefore offer the UK the opportunity to tailor these components of the sector. This would appear to be particularly relevant in the light of recent devolutionary initiatives (to regional infrastructure managers) and the recommendations of the Shaw Report.
Network Rail is a member of the European Network of Infrastructure Managers, and sits on the Policy and Management Committee and the Technical Steering Group. These roles enable NR to seek to exert influence on policy, management and technical matters at a European level. Network Rail also acts as the UK’s ‘one stop shop’ for various purposes, including securing access rights in more than one member state. Its role in these capacities following a Full Brexit would need to be reviewed.
